David Moenning's Daily State of the Markets: 10/09

Taking a Break?

Good Monday morning and welcome back to the game. After three straight record closes on the Dow, stocks took a breather on Friday. At issue was the health of the economy as it would appear that the �bad news is good news� environment may be changing.

Stocks opened weak on the heels of the September Employment Report as traders began to worry that the economy may be �moderating� at a more rapid rate than had been expected. Although the bulls will argue that the news supports the idea that the Fed is now moving toward an easing stance, it appears that the bond market disagrees with the analysis.

While the headline Jobs number was weaker than expected for September, the August numbers were revised significantly higher, which more than offset the shortfall. Bond traders took this to mean that the Fed is more likely to stay on hold than actually cut rates, and yields soared (yes, soared) in response. The yield on the 10-yr finished at 4.70%, which was up from Thursday�s close of 4.61%.

Regardless of which side of the Fed argument you find yourself on, the big jump in bond yields was a definite stumbling block for the bulls on Friday. In light of the fact that the recent rally to new highs has been based on falling oil and interest rates, any backup in either is sure to give traders reason to pause.

However, just as it looked like things might get a little ugly, the bulls got a little help from an old friend on Friday afternoon. Former Fed Chairman Alan Greenspan made headlines by suggesting that �the worst may well be over� for the U.S. housing slump. And since one of the major fears in the market has to do with the health of the housing market, this was music to the bulls� ears.

Our heroes in hooves also got some reassurance from the oil pits as crude finished the day under $60. So, at the end of the day, traders recognized that the recent drop in rates and oil will help keep consumers in an upbeat mood and the major indices wound up with only modest declines.

But we should keep in mind that the bulls have enjoyed a solid run of late and therefore, a pullback or, at the very least, a pause in the action, is completely normal and to be expected.

Looking ahead, we will need to be at the top of our game in the next few weeks as the earnings parade is about to get rolling again. While analysts will be watching the top line earnings numbers closely as usual, it will be company forecasts for the coming quarter that is likely to take center stage.

Turning to this morning, there is no economic news scheduled for release today. However, news of a successful nuclear test in North Korea has created some caution in the early going.

Running through the pre-game indicators, overseas markets are mostly lower. Gold futures are moving a bit higher this morning and are quoted at $581.50 right now. Crude oil futures are also moving up a little this morning and are currently ahead by $0.56 at $60.32. Interest rates are little changed with the 2-year currently quoted at 4.76% while the 10-yr is trading with a yield of 4.69% right now. And finally, with an hour before the bell, stock futures in the U.S. are a trading below fair value. The Dow futures are currently off by -28, the S&Ps are down -2.80, and the NASDAQ is sporting a loss of about -5 points at the moment.

Stocks �In Play� This Morning:

Kroger (KR) � Downgraded at BofA
Global Signal (GSL) � Downgraded at BofA
Genentech (DNA) � Bernstein raises earnings estimates
Amgen (AMGN) � Bernstein raises earnings estimates
Verizon (VZ) � Downgraded at Citigroup
AT&T (T) � Upgraded at Citigroup
Bell South (BLS) � Upgraded at Citigroup
BMC Software (BMC) � Upgraded at Credit Suisse
MasterCard (MA) � Downgraded at Goldman Sachs
Cypress Semiconductor (CY) � Downgraded at Merrill Lynch
Wyeth (WYE) � Added to Buy List at Merrill Lynch
Lam Research (LRCX) � Upgraded at Stanford Group
Express Scripts (ESRX) � Downgraded at UBS
Caremark Rx (CMX) � Downgraded at UBS
MedcoHealth (MHS) � Downgraded at UBS

Long positions in stocks mentioned: T, BLS, BMC, WYE

** For More of David Moenning�s Market Analysis, Stock Portfolios, and Trading Ideas, visit: www.TopGunsTrading.com

The opinions and forecasts expressed are those of David Moenning, President of Heritage Capital Management and Co-Founder of TopGunsTrading.com and may not actually come to pass. Mr. Moenning�s opinions and viewpoints regarding the future of the markets should not be construed as recommendations of any specific security or Heritage Capital program. No part of this material is intended as an investment recommendation. Neither the information nor any opinion expressed constitutes a solicitation to purchase or sell securities or any of HCM�s programs. Do NOT ever purchase any security without doing sufficient research. There is no guarantee that investment objectives outlined will actually come to pass. Investors should consult an Investment Professional before investing in any investment program. Neither Mr. Moenning or Heritage Capital Management nor any of their employees shall have any liability for any loss sustained by anyone who has relied on the information contained herein. Mr. Moenning and employees of HCM may at times have positions in the securities referred to and may make purchases or sales of these securities while this publication is in circulation. The analysis contained is based on both technical and fundamental research. Although the information contained is derived from sources which are believed to be reliable, they cannot be guaranteed.

www.TopGunsTrading.com

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